Scandal-plagued Advanced Marketing Services filed for Chapter 11 bankruptcy yesterday, a move designed to protect it from creditors while it continues to seek a sale or refinancing of its business.

The San Diego company, which distributes best-selling books to warehouse stores and provides customized merchandising services, said it filed for bankruptcy protection after its lenders declined to extend its current loan facility beyond Dec. 28.

AMS defaulted on a condition of the loan by failing to file timely audited financial statements. The company's auditors have not completed the audit of AMS's financial statements for fiscal 2004, 2003 or 2002, nor has AMS filed any annual or quarterly reports for fiscal 2004, 2005, 2006 or 2007.

In conjunction with the Delaware bankruptcy court filing, AMS said it received a $75 million loan from Wells Fargo Foothill to fund ongoing operations during the Chapter 11 proceeding.

“This move will permit AMS, with its investment banker, to continue to pursue strategic alternatives,” Gary Rautenstrauch, chief executive of Advanced Marketing, said in a written statement.

The company's shares plunged $2.10, or 81 percent, yesterday to close at 50 cents. AMS's stock, which once traded on the New York Stock Exchange, has been delisted and now trades on the pink sheets in the over-the-counter market.

AMS, which employs 164 in San Diego and 1,200 worldwide, has suffered a series of setbacks since an accounting scandal surfaced in 2003.

Earlier this month, a federal judge sentenced Sandra Miller Christie, a former vice president of advertising at AMS, to 36 months in prison for her role in a fraud that exaggerated the company's earnings.

Christie pleaded guilty in 2005 to charges that she conspired with other former AMS employees to defraud clients and inflate profits of the company's advertising department from 1999 through 2003. Two other former AMS employees were sentenced earlier this year.

Between May and November, AMS entered into settlements of all derivative actions and class-action lawsuits against the company and its current and former officers and directors, according to the bankruptcy filing.

Despite the company's problems, it maintains a steady business. According to the bankruptcy filing, Advanced Marketing had net sales, excluding intercompany sales, of $822,987,153 in fiscal 2005, which ended in March.

The company has hired investment bank Jefferies and Co. to help it recapitalize the business through a “strategic transaction,” according to the bankruptcy filing.

AMS said in the filing that it had entered into confidentiality agreements with, and provided due diligence to, a number of potential investors.

The company listed assets of more than $100 million and debts of more than $100 million in its preliminary filing. Unsecured creditors include a number of publishing houses; its biggest unsecured creditor is Random House, with a claim of $43.3 million.

The Chapter 11 filing does not include the company's international subsidiaries in the United Kingdom, Mexico or Australia, and their operations won't be affected, AMS said.